The mortgage industry is undergoing a rapid evolution that is upending what once was a solemn, weighty process. The advent of technology, new rules and now automation are all changing the originator-borrower relationship.
No one knows if automation will have the calamitous effect in the mortgage industry that’s being seen in the retail world. But there’s a case to be made for the mortgage professional. And originators need to make it.
Not too long ago a mortgage originator would schedule an appointment with a client to meet in their office, or the client’s home. All applications were handled face to face because of the magnitude of the decision to buy a home.
The originator wore a suit, they spoke professionally, and they regarded the transaction with a sacredness that only a preacher could understand. The originator would ask questions, explain the process, calm the client’s nerves and proceed to take a handwritten 1003 loan application.
Then, boom, the age of the laptop came, loan-origination software became a hit, and housing prices appreciated at a record pace. It was then, in the early 2000s, when the business became flooded with part-time mortgage originators as well as originators who were switching careers because the money was too good to pass up.
If you could pass a state exam, you could get licensed to earn a greater income than you ever thought possible. Couple that with loosening credit requirements, no income verification, and many people’s desire to use their homes as their own personal ATMs, and you have a recipe for disaster.
That disaster came in 2008. Lending came to a screeching halt as the country entered a recession. Residential lending would change forever.
In the wake of the recession, came reform in the way of the 2,300-page Dodd Frank Act. Many of its goals were to streamline financing, make it understandable to the client and end profiteering off the less-savvy borrower.
This launched a new platform of accountability, tracking and responsibility being placed on the individual originator. By 2012, many companies saw the need for electronic reform, both from the standpoint of compliance as well as security and quality of information. This led to the birth of the TRID consumer-disclosure rules, the changing of the parameters of the good faith estimate, and other requirements.
As the industry was in the midst of change, companies that specialized in call-center operations were able to capture the refinance market, teaching new loan officers how to originate both refi and purchase loans, while paying them a fraction of what a traditional loan officer would make, and ultimately driving down their rates because they could operate on much smaller margins than the banks and direct lenders.
While this was happening, borrowers were slowly getting used to speaking to a loan officer one time, then having a processor or assistant take it from there. The age of information at your fingertips was bringing confidence to the borrowers so that they felt informed without having that once coveted face-to-face interaction with their originator.
While the originator slept, the call centers were buzzing all over the country answering phone calls, taking online applications, and gaining the knowledge of an experienced loan officer in the course of a few months because of the sheer volume they handled.
Companies were developing automated software that integrated with financial institutions so that bank statements could be pulled directly from the borrowers’ bank, and the originator didn’t need to collect that information. This leads to accurate information being gathered, without the threat of fraud by an originator or client.
So, what’s next? Employment verifications are nearly 100 percent automated now, and unless the borrower has a need for personal interaction, it might appear the loan originator isn’t needed in the transaction.
There is some good news, however. All of the automation of the mortgage industry relies on one simple fact: that the borrower makes the first move. This is quite often not the case.
Many times, the client is afraid to take the step into homeownership, or they don’t know the options available to take cash out to consolidate debt or remodel, or have the know-how to tap into their equity and move up to a bigger home. This is where the race begins.
Online lenders and big banks spend millions of dollars each day advertising on television, websites, and sending out automated e-mails to their client base to educate them about the process and encourage them to use a fully automated mortgage system, with the security of knowing that if they want to speak to a live person, then all they need to do is call.
So how do you get to the client first? Will automated loan originations take over completely? Will the mortgage originator be extinct in five years? All great questions. No simple answer.
Let’s digress for a moment to the late 1990s, when big-box chains were taking over the market and eliminating your local hardware store, grocer and small retail shops. They came into communities and took over market share faster than mom-and-pop operators could measure their decline in business.
These big chains provided an equally good customer-service experience by having associates located all over the stores and delivered it at prices that couldn’t be beat. Fast forward 10 years and those same stores have 80 percent fewer associates roaming their 100,000-square-feet stores to answer your questions. When you find someone, customer service is the last thing on their minds because they have no competition.
No one knows if their price is good now because there is nothing to compare it to, and ultimately the consumer and those in the job market lose. So, what did we learn from this? It would appear very little as we continue to see automation take over. Now comes the news in Dallas of discount warehouse Sam’s Club replacing human cashiers with a mobile app.
Value of know-how
Originators have a job to do. Mortgage originators need to educate their referral partners on the process and remind them of what has transpired in the retail industry in America.
This should be done not to instill fear, but rather to remind everyone that quality of service and sound business practices based on the client’s best interest do matter. Originators need to consider margin compression and develop compensation plans that are commensurate with rates that allow the originator to compete with the online companies.
Once that is in place, then comes the heavy lifting. How does the originator get to the borrower before the borrower gets online? It is going to take doubling down on efforts to get in front of as many Realtors, financial planners, tax preparers, CPAs and attorneys as you can.
It is going to require using customer-relationship management software to reach out to clients on a regular basis to stay top of mind, and it is going to require that the originator be educated on how every American can obtain the dream of homeownership through programs designed to responsibly lend money for residential home loans.
So, put your phones down, get off social media, and go shake some hands, smile, and reassure borrowers that you are their key to financial security and the guide to their family home. The age of automation may be here, but it doesn’t have to replace you.
You can take control of that automation. And you can use it to work smarter and deliver a high-quality customer-service experience that cannot be replaced.